SAO PAULO--(BUSINESS WIRE)--Fitch Ratings has downgraded the Foreign Currency (FC) and Local Currency (LC) Issuer Default Ratings (IDRs) of OGX S.A. to 'C' from 'CCC' and its long-term National Scale rating to 'C (bra)' from 'CCC (bra)'. In conjunction with these rating actions, Fitch has downgraded the rating of OGX's USD2.6 billion and USD1.1 billion notes to 'C/RR5' from 'CCC/RR4'.
KEY RATING DRIVERS
These downgrades follow the announcement by the
company's controlling shareholder, Eike Batista, that he is contesting
the validity of a USD1 billion put option obligation to OGX.
OGX's 'C' ratings reflect the company's imminent default given its extremely tight liquidity position, and the need for significant capital expenditures to increase production output and operating cash flow. OGX's ambitious capital expenditure program of approximately USD1.3 billion in 2013 and its low to negative EBITDA is expected to result in a depletion of the company's cash by the end of 2013. As of June 30, 2013, OGX had BRL722 million of cash and cash equivalents and BRL8.7 billion of debt obligations, mostly composed of USD2.6 billion notes due in 2018 and USD1.1 billion notes due in 2022.
RATING SENSITIVITIES
Absent a material capital infusion, OGX is
likely to default on its debt in the near future. OGX is a Brazilian oil
and gas company created in 2007, 58.92% owned by EBX Group. OGX has a
portfolio of 62 blocks in Brazil and Colombia, including the recently
acquired 13 exploratory blocks in Brazil. In Brazil, OGX's blocks are
located in the Campos, Santos, Espirito Santo, Para-Maranhao and
Parnaiba Basins.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Corporate Rating
Methodology' (Aug. 8, 2012);
--'Rating Oil and Gas Exploration and
Production Companies' (Aug. 9, 2012).
Applicable Criteria and Related Research:
Rating Oil and Gas
Production Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682334
Corporate
Rating Methodology: Including Short-Term Ratings and Parent and
Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=801545
ALL
FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE WWW.FITCHRATINGS.COM.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
WEBSITE.